Pendragon shares are in reverse after the car dealership warned on profits

Courtney Goldsmith
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Pendragon trades as Evans Halshaw and Stratstone (Source: Getty)

Shares in the UK's largest car dealership dropped as much as 23 per cent this morning after it became the latest UK firm to warn on profits.

Pendragon said it expects pre-tax profit to be around £60m in 2017 compared with expectations of £75.2m, according to Reuters data. The firm blamed the downturn on falling demand for new cars and a consequent price correction in the used car market.

At the time of writing, shares in the company were down 16.38 per cent at 24.25p.

Earlier this month, data from the Society for Motor Manufacturers and Traders (SMMT) showed new car registrations declined in the key month of September for the sixth month in a row.

Pendragon said it expects the new car market to continue to decline this year and the first half of next year as car manufacturers adjust to the reduced level of demand.

The firm added it was "committed" to its strategic goal of doubling used car revenue over the five years to 2021, and it will conduct a strategic review of its new car business.

Read more: Pendragon's boss stands by his bullish outlook for 2017

Pendragon also announced Mel Egglenton had stepped down as chairman for personal reasons with immediate effect. Chris Chambers, a non-executive director since 2013, has been appointed to the role.

Following a strategic review, chief executive Trevor Finn said Pendragon will reshape the business, focusing on software and online technologies.

"We believe this strategy will provide more reliable and sustainable returns," Finn said.

The company's revenue grew 3.7 per cent in the third quarter compared with the previous year, while used car revenue grew 18.1 per cent. It anticipates profit growth to resume in 2018.

Pendragon was the latest in a string of UK companies warning on profits - data from EY showed the number had increased to 75 in the third quarter, up from 45 the previous quarter and the biggest rise in nearly six years.

Research from UHY Hacker Young found car dealers were holding 16 per cent more unsold stock than they were this time last year as manufacturers continue to push new vehicles on their books.

"It’s unsustainable for unsold stock to keep rising so quickly," said Paul Daly, partner at UHY Hacker Young.

“Pressures on dealers are higher than ever before, with manufacturers demanding bigger and better premises, and many now need to resort to significant off site storage facilities to hold the excess stocks.”

Read more: New car sales in the UK have fallen for the sixth month in a row

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